Disappointing News Sends Dollar and Stocks Lower

January 27, 2015

Juno was downgraded to sub-blizzard status. N.Y.C. is likely to get just a foot of snow, and the stock exchange opened as scheduled but with a thud, as the Dow dropped over 1.0%. In Europe, equities have declined 5% in Greece, 1.4% in Germany, 1.2% in France, 0.9% in Spain, 0.8% in Britain and 0.6% in Italy. In the Pacific Rim, share prices earlier had risen 1.7% in Japan, 1.0% in India, 0.9% in South Korea, 0.8% in Australia and 0.7% in New Zealand, but such fell 0.9% in China and 0.4% in Hong Kong.

Globally sensitive U.S. stocks like Caterpillar, Microsoft, and United Technologies were whacked by the combination of a stronger dollar and downwardly revised global demand prospects.

The dollar has depreciated by 1.2% against the euro, 0.9% versus the yen, 0.6% relative to the kiwi, Swissie and sterling, 0.5% vis-a-vis the loonie and Australian dollar, and 0.2% against the yuan.

Ten-year sovereign debt yields fell 7 basis points in the United States, 5 bps in the U.K., and a basis point each in Canada and Germany. The 10-year Japanese JGB rose four basis points, however.

U.S. durable goods orders had been expected to recover from November’s drop. Instead, that drop was revised upward to 2.1%, and December showed a further decline of 3.4%. Durable goods orders in October had only risen 0.3%. By contrast, orders in 2014 increased 6.2%.

The Case-Shiller index of U.S. housing price inflation in 20 metropolitan areas of the U.S. slowed further to 4.3% in November from 4.5% in October, 4.9% in September, 5.6% in August, 6.8% in July and 13.4% at the end of 2013.

Small business sentiment in Japan fell to a 9-month low of 46.3 in January from 46.7 in December and 47.7 in November. Sentiment among firms weakened in both manufacturing and non-manufacturing. Japan’s Economics Minister Amari conceded that it will take longer to return inflation to the goal of 2.0%.

Industrial profits in China registered an outsized 8.0% year-over-year decline in December following 12-month slides of 4.2% in November, 2.1% in October and a 0.4% on-year rise as recently as September. Profits for 2014 were trimmed to 3.3% by the late-year swoon.

British GDP growth decelerated more sharply than assumed last quarter, as both production and construction contracted, mitigating the support of a 0.8% advance in services. GDP increased 0.5% in 4Q, down from 0.7% in 3Q, and by a smaller-than-forecast 2.7% from the final quarter of 2013. The index of services, moreover, nudged only 0.1% higher in November.

Australia’s business conditions index, compiled by NAB, slid a point to a 3-month low of +4 in December, and business confidence stayed weak with a reading of +2.

The People’s Bank of China lent support to the economy today by unexpectedly injecting extra money liquidity.

The Central Bank of Sri Lanka again kept its lending and deposit rates unchanged at 8.0% and 6.5% after the latest monthly policy meeting there. Reserve requirements were not changed either.

Magyar Nemzeti Bank in Hungary retained a 2.1% two-week central bank deposit rate as expected. Following two years of progressive cuts totaling 490 basis points, such has been at 2.1% since July and is unlikely to rise before 2016.

A vice president of the Swiss National Bank cautioned markets that currency intervention remains a policy option, noting that markets have not yet settled down following the recent shift in Swiss currency policy.

Poland’s jobless rate picked up 0.1 percentage point ppt) to 11.5% in December but was 1.9 ppts lower than at end-2013. Real GDP expanded 3.3% last year, roughly twice as much as in 2013, and retail sales rose 1.8% between end-2013 and end-2014.

The British Bankers Association reported lower-than-expected mortgage approvals last month of 35,667, 1.2% less than in November. The average in 2014 was 41,583 per month.

Hong Kong’s trade deficit widened 9% to HKD 546 billion in 2014. Mexico’s trade swung to a 250 million dollar surplus last month from a $1.1 billion deficit in November. The Thai trade position swung to a surplus of $1.59 billion from an 80 million dollar deficit in November, and the Philippines posted a $272 million surplus in November after a $194 million deficit the month before.

Corporate service prices in Japan were unchanged on month in December and registered a third straight 12-month advance of 3.6%.

South Korean consumer confidence rose 1% in January, and China’s indices of both leading and coincident economic indicators climbed 1.1% in December.

Swedish producer prices fell 0.3% on month and 0.1% on year in December. The trade surplus in Sweden was only SEK 0.4 billion last month and was more than halved to SEK 21.1 billion in 2014.

Finnish consumer sentiment rose 1.6 points to a six-month high in January of 6.0. Business confidence improved two points to –7.

U.S. new home sales rose 11.6% or 50K to 481,000 last month. The Conference Board gauge of U.S. consumer confidence rose to 102.9, a 7.5-year peak, from 93.1 the month before. Today begins a 2-day FOMC meeting. The Richmond Fed manufacturing index is due, too.

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